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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-Q

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(MarkOne)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 28,
2005

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from

............................. to ............................

1-13666
Commission File Number

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DARDEN RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)

Florida 59-3305930
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)

5900 Lake Ellenor Drive,
Orlando, Florida 32809
(Address of principal executive offices) (Zip Code)

407-245-4000
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).

[X] Yes [ ] No

Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).

[ ] Yes [X] No

Number of shares of common stock outstanding as of September 30, 2005:
150,522,158 (excluding 122,187,912 shares held in our treasury).

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DARDEN RESTAURANTS, INC.

TABLE OF CONTENTS

Page

Part I - Financial Information

Item 1. Financial Statements (Unaudited) 3

Consolidated Statements of Earnings 3

Consolidated Balance Sheets 4

Consolidated Statements of Changes in
Stockholders' Equity and Accumulated
Other Comprehensive Income (Loss) 5

Consolidated Statements of Cash Flows 6

Notes to Consolidated Financial Statements 7

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11

Item 3. Quantitative and Qualitative Disclosures
About Market Risk 18

Item 4. Controls and Procedures 18

Part II - Other Information

Item 1. Legal Proceedings 19

Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds 20

Item 6. Exhibits 20

Signatures 21

Index to Exhibits 22

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements

DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)

Quarter Ended
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August 28, 2005 August 29, 2004
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Sales........................................................ $ 1,409,167 $ 1,278,644
Costs and expenses:
Cost of sales:
Food and beverage....................................... 419,195 391,421
Restaurant labor........................................ 449,159 405,816
Restaurant expenses..................................... 214,694 195,017
------------ ------------
Total cost of sales, excluding restaurant depreciation
and amortization of $50,420 and $49,219, respectively. $ 1,083,048 $ 992,254
Selling, general and administrative....................... 133,035 114,580
Depreciation and amortization............................. 54,138 52,760
Interest, net............................................. 10,948 10,964
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Total costs and expenses.............................. $ 1,281,169 $ 1,170,558
------------ ------------

Earnings before income taxes................................. 127,998 108,086
Income taxes................................................. (42,484) (37,074)
------------ ------------

Net earnings................................................. $ 85,514 $ 71,012
============ ============

Net earnings per share:
Basic..................................................... $ 0.56 $ 0.45
============ ============
Diluted................................................... $ 0.53 $ 0.44
============ ============

Average number of common shares outstanding:
Basic..................................................... 153,300 157,600
============ ============
Diluted................................................... 160,400 163,200
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See accompanying notes to consolidated financial statements.

DARDEN RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

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August 28, 2005 May 29, 2005
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ASSETS
Current assets:
Cash and cash equivalents................................. $ 244,721 $ 42,801
Short-term investments.................................... 100,000 --
Receivables............................................... 40,069 36,510
Inventories............................................... 225,717 235,444
Prepaid expenses and other current assets................. 35,708 28,927
Deferred income taxes..................................... 65,153 63,584
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Total current assets.................................. $ 711,368 $ 407,266
Land, buildings and equipment, net........................... 2,380,936 2,351,454
Other assets................................................. 183,576 179,051
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Total assets.......................................... $ 3,275,880 $ 2,937,771
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 228,991 $ 191,197
Accrued payroll........................................... 99,305 114,602
Accrued income taxes...................................... 90,772 52,404
Other accrued taxes....................................... 47,125 43,825
Unearned revenues......................................... 76,561 88,472
Current portion of long-term debt......................... 299,970 299,929
Other current liabilities................................. 257,659 254,178
----------- -----------
Total current liabilities............................. $ 1,100,383 $ 1,044,607
Long-term debt, less current portion......................... 646,933 350,318
Deferred income taxes........................................ 109,072 114,846
Deferred rent................................................ 133,127 130,872
Other liabilities............................................ 24,991 24,109
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Total liabilities..................................... $ 2,014,506 $ 1,664,752
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Stockholders' equity:
Common stock and surplus.................................. $ 1,743,252 $ 1,703,336
Retained earnings......................................... 1,491,268 1,405,754
Treasury stock............................................ (1,916,469) (1,784,835)
Accumulated other comprehensive income (loss)............. (3,759) (8,876)
Unearned compensation..................................... (52,346) (41,685)
Officer notes receivable.................................. (572) (675)
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Total stockholders' equity............................ $ 1,261,374 $ 1,273,019
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Total liabilities and stockholders' equity............ $ 3,275,880 $ 2,937,771
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See accompanying notes to consolidated financial statements.

DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
For the quarters ended August 28, 2005 and August 29, 2004
(In thousands)
(Unaudited)

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Common Accumulated
Stock Other Officer Total
and Retained Treasury Comprehensive Unearned Notes Stockholders'
Surplus Earnings Stock Income (Loss) Compensation Receivable Equity
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Balance at May 29, 2005........... $1,703,336 $1,405,754 $(1,784,835) $ (8,876) $(41,685) $ (675) $1,273,019
Comprehensive income:
Net earnings................... -- 85,514 -- -- -- -- 85,514
Other comprehensive income
(loss):
Foreign currency adjustment... -- -- -- 1,752 -- -- 1,752
Change in fair value of
derivatives, net of tax of
$2,437...................... -- -- -- 3,365 -- -- 3,365
-----------
Total comprehensive income.. 90,631
Stock option exercises (1,173
shares)........................ 16,434 -- 1,110 -- -- -- 17,544
Issuance of restricted stock
(391 shares), net of forfeiture
adjustments.................... 12,979 -- -- -- (12,979) -- --
Earned compensation............... -- -- -- -- 1,330 -- 1,330
ESOP note receivable repayments... -- -- -- -- 988 -- 988
Income tax benefits credited to
equity......................... 9,292 -- -- -- -- -- 9,292

Purchases of common stock for
treasury (4,054 shares)........ -- -- (133,138) -- -- -- (133,138)
Issuance of treasury stock under
Employee Stock Purchase and
other plans (58 shares)....... 1,211 -- 394 -- -- -- 1,605
Repayment of officer notes 103 103
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Balance at August 28, 2005 $1,743,252 $1,491,268 $(1,916,469) $ (3,759) $(52,346) $ (572) $1,261,374
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Balance at May 30, 2004........... $1,584,115 $1,127,653 $(1,483,768) $ (10,173) $(41,401) $(1,138) $1,175,288
Comprehensive income:
Net earnings................... -- 71,012 -- -- -- -- 71,012
Other comprehensive income
(loss):
Foreign currency adjustment.. -- -- -- 904 -- -- 904
Change in fair value of
derivatives, net of tax of
$1,139..................... -- -- -- (1,495) -- -- (1,495)
------------
Total comprehensive income. 70,421
Stock option exercises (964 shares) 7,923 -- 439 -- -- -- 8,362
Issuance of restricted stock
(361 shares), net of forfeiture
adjustments.................... 8,227 -- -- -- (8,227) -- --
Earned compensation............... -- -- -- -- 1,688 -- 1,688
ESOP note receivable repayments... -- -- -- -- 750 -- 750
Income tax benefits credited to
equity......................... 4,527 -- -- -- -- -- 4,527
Purchases of common stock for
treasury (2,923 shares)........ -- -- (61,963) -- -- -- (61,963)
Issuance of treasury stock under
Employee Stock Purchase and
other plans (71 shares)....... 771 -- 410 -- -- -- 1,181
Repayment of officer notes........ -- -- -- -- -- 346 346
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Balance at August 29, 2004 $1,605,563 $1,198,665 $(1,544,882) $ (10,764) $(47,190) $ (792) $1,200,600
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See accompanying notes to consolidated financial statements.

DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

Quarter Ended
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August 28, 2005 August 29, 2004
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Cash flows-operating activities
Net earnings................................................. $ 85,514 $ 71,012
Adjustments to reconcile net earnings to cash flows:
Depreciation and amortization.............................. 54,138 52,760
Asset impairment charge (credit), net...................... 64 (5)
Amortization of unearned compensation and loan costs....... 2,222 2,551
Non-cash compensation expense.............................. 134 28
Change in current assets and liabilities................... 54,954 (14,890)
Contribution to defined benefit pension plans and
postretirement plan..................................... (124) (106)
Loss on disposal of land, buildings and equipment.......... 622 154
Change in cash surrender value of trust owned life insurance (1,176) 271
Deferred income taxes...................................... (9,780) (3,726)
Change in deferred rent ................................... 2,255 2,061
Change in other liabilities ............................... 969 552
Income tax benefits credited to equity..................... 9,292 4,527
Other, net................................................. 5,967 (2,332)
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Net cash provided by operating activities................ $ 205,051 $ 112,857
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Cash flows-investing activities
Purchases of land, buildings and equipment................... (81,101) (62,665)
Increase in other assets..................................... (2,576) (319)
Proceeds from disposal of land, buildings and equipment ..... -- 1,184
Purchases of short term investments.......................... (100,000) --
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Net cash used in investing activities.................... $ (183,677) $ (61,800)
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Cash flows-financing activities
Proceeds from issuance of common stock....................... 19,015 9,515
Purchases of treasury stock.................................. (133,138) (61,963)
Increase in short-term debt.................................. -- 3,300
Proceeds from issuance of long-term debt..................... 294,669 --
ESOP note receivable repayment............................... 988 750
Repayment of long-term debt.................................. (988) (750)
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Net cash provided by (used in) financing activities...... $ 180,546 $ (49,148)
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Increase in cash and cash equivalents........................... 201,920 1,909
Cash and cash equivalents - beginning of period................. 42,801 36,694
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Cash and cash equivalents - end of period....................... $ 244,721 $ 38,603
============= ===========

Cash flow from changes in current assets and liabilities
Receivables.................................................. (3,559) 4,736
Inventories.................................................. 9,727 (19,208)
Prepaid expenses and other current assets.................... (7,070) (2,487)
Accounts payable............................................. 37,794 (9,926)
Accrued payroll.............................................. (15,297) (13,900)
Accrued income taxes......................................... 38,368 29,335
Other accrued taxes.......................................... 3,300 1,833
Unearned revenues............................................ (11,911) (10,422)
Other current liabilities.................................... 3,602 5,149
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Change in current assets and liabilities................. $ 54,954 $ (14,890)
============== ===========

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See accompanying notes to consolidated financial statements.

DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)

Note 1. Background

Darden Restaurants, Inc. ("we, "our" or the "Company") owns and operates
casual dining restaurants in the United States and Canada under the trade names
Red Lobster(R), Olive Garden(R), Bahama Breeze(R), Smokey Bones Barbeque &
Grill(R) and Seasons 52(R). We have prepared these consolidated financial
statements pursuant to the rules and regulations of the Securities and Exchange
Commission (the "SEC"). They do not include certain information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. However, in the opinion of
management, all adjustments considered necessary for a fair presentation have
been included and are of a normal recurring nature. Operating results for the
quarter ended August 28, 2005 are not necessarily indicative of the results that
may be expected for the fiscal year ending May 28, 2006.

These statements should be read in conjunction with the consolidated
financial statements and related notes to consolidated financial statements
included in our Annual Report on Form 10-K for the fiscal year ended May 29,
2005. The accounting policies used in preparing these consolidated financial
statements are the same as those described in our Form 10-K.

Note 2. Consolidated Statements of Cash Flows

During the quarter ended August 28, 2005, we paid $7,617 for interest (net
of amounts capitalized) and $4,069 for income taxes. During the quarter ended
August 29, 2004, we paid $7,438 for interest (net of amounts capitalized) and
$6,700 for income taxes.

Note 3. Stock-Based Compensation

Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," encourages the use of a fair-value method of
accounting for stock-based awards under which the fair value of stock options is
determined on the date of grant and expensed over the vesting period. As allowed
by SFAS No. 123, we have elected to account for our stock-based compensation
plans under an intrinsic value method that requires compensation expense to be
recorded only if, on the date of grant, the current market price of our common
stock exceeds the exercise price the employee must pay for the stock. Our policy
is to grant stock options at the fair market value of our underlying stock at
the date of grant. Accordingly, no compensation expense has been recognized for
stock options granted under any of our stock plans because the exercise price of
all options granted was equal to the current market value of our stock on the
grant date. Had we determined compensation expense for our stock options based
on the fair value at the grant date as prescribed under SFAS No. 123, our net
earnings and net earnings per share would have been reduced to the pro forma
amounts indicated below:

Net earnings, as reported $ 85,514 $ 71,012
Add: Stock-based compensation expense included
in reported net earnings, net of related 876 1,060
tax effects
Deduct: Total stock-based compensation expense
determined under fair value based method
for all awards, net of related tax effects (5,406) (5,028)
--------------------------------------------------
Pro forma $ 80,984 $ 67,044
==================================================
Basic net earnings per share
As reported $ 0.56 $ 0.45
Pro forma $ 0.53 $ 0.43
Diluted net earnings per share
As reported $ 0.53 $ 0.44
Pro forma $ 0.50 $ 0.41
====================================================================================================================

Note 4. Short-Term Investments

Short-term investments consist of investment grade auction rate securities,
which have been classified as available-for-sale and reported at fair value.
Interest rates for our investments in auction rate securities are reset through
an auction process at predetermined periods ranging from 28 to 35 days. Despite
the long-term nature of their stated contractual maturities, there is a readily
liquid market for these securities and failed auctions rarely occur. Due to the
reset feature and their carrying value equaling their fair value, there are no
gross realized and unrealized gains or losses from these short-term investments.
As of August 28, 2005 and May 29, 2005, we held approximately $100,000 and $0,
respectively, in short-term investments.

Note 5. Long-Term Debt

On July 29, 2005, we filed a registration statement with the SEC to
register an additional $475,000 of debt securities using a shelf registration
process as well as to carry forward the $125,000 of debt securities available
under our prior registration statement. Under this registration statement, which
became effective on August 5, 2005, we may offer, from time to time, up to
$600,000 of our debt securities. On August 12, 2005, we issued $150,000 of
unsecured 4.875 percent senior notes due in August 2010 and $150,000 of
unsecured 6.000 percent senior notes due in August 2035 under the registration
statement. Discount and issuance costs, which were $2,430 and $2,901,
respectively, are being amortized over the terms of the senior notes using the
effective interest rate method. A portion of the proceeds from these issuances
were used to repay at maturity our outstanding $150,000 of 8.375 percent senior
notes on September 15, 2005. We intend to use the remaining proceeds from the
issuance to repay at maturity or redeem prior to maturity our outstanding
$150,000 of 6.375 percent notes due February 1, 2006.

We also maintain a credit facility, dated August 16, 2005, with a
consortium of banks under which we can borrow up to $500,000. As part of this
credit facility, we may request issuance of up to $100,000 in letters of credit.
The credit facility allows us to borrow at interest rates that vary based on a
spread over (i) LIBOR or (ii) a base rate that is the higher of the prime rate
or one-half of one percent above the federal funds rate, at our option. The
interest rate spread over LIBOR is determined by our debt rating. We may also
request that loans be made at interest rates offered by one or more of the
banks, which may vary from the LIBOR or base rate. The credit facility supports
our commercial paper borrowing program and expires on August 15, 2010. We are
required to pay a facility fee of 10.0 basis points per annum on the average
daily amount of loan commitments by the consortium. The amount of interest and
annual facility fee are subject to change based on our maintenance of certain
debt ratings and financial ratios, such as maximum debt to capital ratios.
Advances under the credit facility are unsecured. As of August 28, 2005 and May
29, 2005, no borrowings were outstanding.

Note 6. Net Earnings per Share

Outstanding stock options and restricted stock granted by us represent the
only dilutive effect reflected in diluted weighted average shares outstanding.
Options and restricted stock do not impact the numerator of the diluted net
earnings per share computation.

Options to purchase 2,200 and 6,330,991 shares of common stock were
excluded from the calculation of diluted net earnings per share for the quarters
ended August 28, 2005 and August 29, 2004, respectively, because their exercise
prices exceeded the average market price of common shares for the period.

Note 7. Stockholders' Equity

Pursuant to the authorization of our Board of Directors to repurchase up to
137,400,000 shares in accordance with applicable securities regulations, we
repurchased 4,054,074 shares of our common stock for $133,138 during the quarter
ended August 28, 2005, resulting in a cumulative repurchase of 124,638,945
shares as of August 28, 2005.

Note 8. Derivative Instruments and Hedging Activities

During the first quarter of fiscal 2006 and fiscal 2005, we entered into
equity forward contracts to hedge the risk of changes in future cash flows
associated with the unvested unrecognized Darden stock units granted during the
first quarter of fiscal 2006 and fiscal 2005. The equity forward contracts will
be settled at the end of the vesting periods of their underlying Darden stock
units, which range between four and five years. The equity forward

contracts, which are indexed to 330,000 shares of our common stock, have a
$8,264 notional amount and can only be net settled in cash. The equity forward
contracts are used to hedge the variability in cash flows associated with the
unvested unrecognized Darden stock units. To the extent the equity forward
contracts are effective in offsetting the variability of the hedged cash flows,
changes in the fair value of the equity forward contracts are not included in
current earnings but are reported as accumulated other comprehensive income
(loss). A deferred gain of $1,599 related to the equity forward contracts was
recognized in accumulated other comprehensive income (loss) at August 28, 2005.
As the Darden stock units vest, we will effectively de-designate that portion of
the equity forward contract that no longer qualifies for hedge accounting, and
changes in fair value associated with that portion of the equity forward
contract will be recognized in current earnings. A gain of $91 and $14 was
recognized in earnings as a component of restaurant labor during the quarters
ended August 28, 2005 and August 29, 2004, respectively.

During fiscal 2005 and fiscal 2004, we entered into interest rate swap
agreements ("swaps") to hedge the risk of changes in interest rates on the cost
of a future issuance of fixed-rate debt. The swaps, which had a $100,000
notional principal amount of indebtedness, were used to hedge a portion of the
interest payments associated with $150,000 of unsecured 4.875 percent senior
notes due in August 2010, which were issued in August 2005. The interest rate
swaps were settled at the time of the related debt issuance with a net loss of
$1,177 being recognized in accumulated other comprehensive income (loss). The
net loss on the interest rate swaps is being amortized into earnings as an
adjustment to interest expense over the same period in which the related
interest costs on the new debt issuance are being recognized in earnings. It is
expected that approximately $200 of this loss will be recognized in earnings as
an adjustment to interest expense in fiscal 2006.

Note 9. Retirement Plans

Components of net periodic benefit cost are as follows:

Defined Benefit Plans Postretirement Benefit Plan
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Quarter Ended Quarter Ended
August 28, August 29, August 28, August 29,
2005 2004 2005 2004
- ------------------------------------------------------------------------------------------------------------------

Service cost $ 1,300 $ 1,217 $ 181 $ 175
Interest cost 2,016 1,828 233 251
Expected return on plan assets (3,270) (3,210) -- --
Amortization of unrecognized prior service cost 21 (87) -- --
Recognized net actuarial loss 1,374 1,248 49 87
- ------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 1,441 $ 996 $ 463 $ 513
==================================================================================================================

Note 10. Commitments and Contingencies

As collateral for performance on other contracts and as credit guarantees
to banks and insurers, we were contingently liable pursuant to guarantees of
subsidiary obligations under standby letters of credit. As of August 28, 2005
and May 29, 2005, we had $64,556 and $72,677, respectively, of standby letters
of credit related to workers' compensation and general liabilities accrued in
our consolidated financial statements. As of August 28, 2005 and May 29, 2005,
we also had $13,881 and $13,829, respectively, of standby letters of credit
related to contractual operating lease obligations and other payments. All
standby letters of credit are renewable annually.

As of August 28, 2005 and May 29, 2005, we had $1,643 and $1,768,
respectively, of guarantees associated with properties that have been assigned
to third parties. These amounts represent the maximum potential amount of future
payments under the guarantees. The fair value of these potential payments,
discounted at our pre-tax cost of capital, at August 28, 2005 and May 29, 2005
amounted to $1,305 and $1,395, respectively. We have not accrued for the
guarantees, as we believe the likelihood of the third parties defaulting on the
assignment agreements is improbable. In the event of default by a third party,
the indemnity and default clauses in our assignment agreements govern our
ability to pursue and recover from the third party for damages incurred as a
result of its default. We do not hold any third-party assets as collateral
related to these assignment agreements, except to the extent the assignment
allows us to repossess the building and personal property. The guarantees expire
over their respective lease terms, which range from fiscal 2007 through fiscal
2012.

industry and can also involve infringement of, or challenges to, our trademarks.
While the resolution of a lawsuit, proceeding or claim may have an impact on our
financial results for the period in which it is resolved, we believe that the
final disposition of the lawsuits, proceedings and claims in which we are
currently involved, either individually or in the aggregate, will not have a
material adverse effect on our financial position, results of operations or
liquidity.

Like other restaurant companies and retail employers, we have been faced in
a few states with allegations of purported class-wide wage and hour violations.
The following is a brief description of the more significant of these matters.
In view of the inherent uncertainties of litigation, the outcome of any
unresolved matter described below cannot be predicted at this time, nor can the
amount of any potential loss be reasonably estimated.

In March 2003 and March 2002, two purported class action lawsuits were
brought against us in the Superior Court of Orange County, California by three
current and former hourly restaurant employees alleging violations of California
labor laws with respect to providing meal and rest breaks. Although we continue
to believe we provided the required meal and rest breaks to our employees, to
avoid potentially costly and protracted litigation, we agreed during the second
quarter of fiscal 2005 to settle both lawsuits and a similar case filed in
Sacramento County for approximately $9,500. Terms of the settlement, which do
not include any admission of liability by us, have received preliminary judicial
approval, and claims administration is underway. The settlement amounts of these
lawsuits are included in other current liabilities at August 28, 2005.

In August 2003, three former employees in Washington filed a similar
purported class action in Washington State Superior Court in Spokane County
alleging violations of Washington labor laws with respect to providing rest
breaks. The Court stayed the action and ordered the plaintiffs into our
mandatory arbitration program. The plaintiffs' motion for reconsideration was
not granted; their appeal of the denial of reconsideration was also not granted,
and plaintiffs subsequently filed a demand for arbitration. We believe we
provided the required meal and rest breaks to our employees, and we intend to
vigorously defend our position in this case.

Beginning in 2002, a total of five purported class action lawsuits were
filed in Superior Courts of California (two each in Los Angeles County and
Orange County, and one in Sacramento County) in which the plaintiffs allege that
they and other current and former service managers, beverage and hospitality
managers and culinary managers were improperly classified as exempt employees
under California labor laws. The plaintiffs seek unpaid overtime wages and
penalties. Two of the cases have been removed to arbitration under our mandatory
arbitration program, one has been stayed to allow consideration of judicial
coordination with the other cases, one is proceeding as an individual claim, and
one remains a purported class action litigation matter. We believe we properly
classified these employees as exempt under California law, and we intend to
vigorously defend against all claims in these lawsuits.

Note 11. Future Application of Accounting Standards

In November 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 151, "Inventory Costs," which clarifies the accounting for abnormal
amounts of idle facilities expense, freight, handling costs and wasted material.
SFAS No. 151 is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. We do not believe the adoption of SFAS No. 151
will have a material impact on our financial statements.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Non-Monetary
Assets." SFAS No. 153 eliminates the exception for non-monetary exchanges of
similar productive assets and replaces it with a general exception for exchanges
of non-monetary assets that do not have commercial substance. SFAS No. 153 is
effective for non-monetary asset exchanges occurring in fiscal periods beginning
after June 15, 2005. We do not believe the adoption of SFAS No. 153 will have a
material impact on our financial statements.

In December 2004, the FASB issued SFAS No. 123 (Revised), "Share-Based
Payment." SFAS No. 123R revises SFAS No. 123, "Accounting for Stock-Based
Compensation" and generally requires the cost associated with employee services
received in exchange for an award of equity instruments be measured based on the
grant-date fair value of the award and recognized in the financial statements
over the period during which employees are required to provide service in
exchange for the award. SFAS No. 123R also provides guidance on how to determine
the grant-date fair value for awards of equity instruments as well as
alternative methods of adopting its requirements. SFAS No. 123R is effective for
annual reporting periods beginning after June 15, 2005. As disclosed in Note 3,
based on the current assumptions and calculations used, had we recognized
compensation expense based on the fair value of awards of equity instruments,
net earnings would have been reduced by approximately $4,632 and $3,968 for

quarters ended August 28, 2005 and August 29, 2004, respectively. We have not
yet determined the method of adoption or the effect of adopting SFAS No. 123R
and have not determined whether the adoption will result in future amounts
similar to the current pro forma disclosures under SFAS No. 123.

Note 12. Subsequent Events

On September 22, 2005, the Board of Directors declared an increase in the
cash dividend to twenty cents per share to be paid on November 1, 2005 to all
shareholders of record as of the close of business on October 10, 2005. Based on
this twenty cent semi-annual dividend declaration, our indicated annual dividend
is forty cents per share. Previously, we had paid a semi-annual dividend of four
cents per share.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

The discussion and analysis below for the Company should be read in
conjunction with the financial statements and the notes to such financial
statements included elsewhere in this Form 10-Q. The following table sets forth
selected operating data as a percent of sales for the periods indicated. All
information is derived from the consolidated statements of earnings for the
quarters ended August 28, 2005 and August 29, 2004.

Sales .......................................................... 100.0% 100.0%
Costs and expenses:
Cost of sales:
Food and beverage.......................................... 29.8 30.6
Restaurant labor........................................... 31.9 31.7
Restaurant expenses........................................ 15.2 15.3
------ ------
Total cost of sales, excluding restaurant depreciation
and amortization of 3.6% and 3.8%, respectively........ 76.9% 77.6%
Selling, general and administrative.......................... 9.4 9.0
Depreciation and amortization................................ 3.8 4.1
Interest, net................................................ 0.8 0.8
------ ------
Total costs and expenses............................... 90.9% 91.5%
------ ------

Earnings before income taxes.................................... 9.1 8.5
Income taxes.................................................... (3.0) (2.9)
------ ------

Net earnings.................................................... 6.1% 5.6%
====== ======

- --------------------------------------------------------------------------------------------------------------------

OVERVIEW OF OPERATIONS

Our sales were $1.41 billion for the first quarter of fiscal 2006 compared
to $1.28 billion for the first quarter of fiscal 2005, a 10.2 percent increase.
The increase was primarily driven by increased U.S. same-restaurant sales at
Olive Garden and Red Lobster and a net increase of 57 company-owned restaurants
since the first quarter of fiscal 2005. For the first quarter of fiscal 2006,
our net earnings were $86 million compared to $71 million for the first quarter
of fiscal 2005, a 20.4 percent increase, and our diluted net earnings per share
were $0.53 compared to $0.44 for the first quarter of fiscal 2005, a 20.5
percent increase.

Olive Garden reported its 44th consecutive quarter of U.S. same-restaurant
sales growth during the first quarter of fiscal 2006 with a 7.4 percent
increase. Olive Garden continues to focus on maintaining its current level of
operating performance while establishing a foundation for accelerated new
restaurant growth. Red Lobster's U.S. same-restaurant sales for the first
quarter of fiscal 2006 increased for the fourth consecutive quarter with a 5.7
percent increase. During the first quarter of fiscal 2006, Red Lobster continued
to focus on its "fresh, clean and friendly" initiatives as well as its "Simply
Great" operating discipline, which has helped eliminate unnecessary costs and
complexity from its operations. As a result, Red Lobster has improved its guest
satisfaction results to record levels and increased same-restaurant sales. While
Bahama Breeze's same-restaurant sales decreased 0.4 percent in the first quarter
of fiscal 2006, its operating profit improved as it focused on reducing
unnecessary expenses and improving the guest experience. Smokey Bones
same-restaurant sales decreased 0.1 percent in the first quarter of fiscal 2006,
but its operating results improved significantly compared to the first quarter
of fiscal 2005. Smokey Bones operated 34 more restaurants than the prior year's
first quarter, including seven that were opened during the first quarter of
fiscal 2006. Smokey Bones continues to focus on broadening its appeal through
menu enhancements and increasing guest frequency while lowering its cost of
sales. During fiscal 2006, Smokey Bones expects to open 25 to 30 new
restaurants.

We estimate that Hurricanes Katrina and Rita, which occurred in fiscal
September, the first month of our fiscal 2006 second quarter, will have a
minimal direct effect on our fiscal 2006 sales and net earnings. There are
currently three restaurants (one Olive Garden and two Red Lobsters) that are
closed indefinitely as a result of

Hurricane Katrina, and three restaurants (two Olive Gardens and one Red Lobster)
that are closed temporarily as a result of Hurricane Rita. Decisions regarding
rebuilding and reopening are pending clean-up and recovery efforts in Louisiana,
Mississippi and Texas.

SALES

Sales were $1.41 billion and $1.28 billion for the quarters ended August
28, 2005 and August 29, 2004, respectively. The 10.2 percent increase in sales
for the first quarter of fiscal 2006 was primarily due to increased U.S.
same-restaurant sales at Olive Garden and Red Lobster and a net increase of 57
company-owned restaurants since the first quarter of fiscal 2005. Red Lobster
sales of $634 million were 6.6 percent above last year's first quarter, which
resulted primarily from a 5.7 percent increase in U.S. same-restaurant sales.
The increase in U.S. same-restaurant sales resulted primarily from a 3.0 percent
increase in same-restaurant guest counts and a 2.7 percent increase in average
check. Olive Garden's sales of $644 million were 10.8 percent above last year's
first quarter, driven primarily by a 7.4 percent increase in U.S.
same-restaurant sales and its 21 net new restaurants in operation compared to
last year's first quarter. Olive Garden achieved its 44th consecutive quarter of
U.S. same-restaurant sales growth primarily as a result of a 5.0 percent
increase in same-restaurant guest counts and a 2.4 percent increase in average
check. Bahama Breeze sales of $45 million were 0.7% below last year's first
quarter, primarily as a result of a changing sales mix. Same-restaurant sales
decreased 0.4 percent in the first quarter of fiscal 2006 compared to last
year's first quarter. Smokey Bones sales of $82 million were 46% above last
year's first quarter primarily as a result of its 34 net new restaurants in
operation since the first quarter of 2005. Same restaurant sales decreased 0.1%
compared to last year's first quarter.

COSTS AND EXPENSES

Total costs and expenses were $1.28 billion and $1.17 billion for the
quarters ended August 28, 2005 and August 29, 2004, respectively. As a percent
of sales, total costs and expenses decreased from 91.5 percent in the first
quarter of fiscal 2005 to 90.9 percent in the first quarter of fiscal 2006.

Food and beverage costs increased $28 million, or 7.1 percent, from $391
million to $419 million in the first quarter of fiscal 2006 compared to the
first quarter of fiscal 2005. As a percent of sales, food and beverage costs
decreased in the first quarter of fiscal 2006 primarily as a result of cost
savings initiatives and lower dairy costs. Food and beverage costs, as a percent
of sales, also decreased as a result of the larger contribution by Olive Garden,
which has historically had lower food and beverage costs, to our overall sales
and operating results. Restaurant labor increased $43 million, or 10.7 percent,
from $406 million to $449 million in the first quarter of fiscal 2006 compared
to the first quarter of fiscal 2005. As a percent of sales, restaurant labor
increased in the first quarter of fiscal 2006 primarily as a result of an
increase in wage rates and higher restaurant-level bonuses, which was partially
offset by increased sales leverage at Olive Garden and Red Lobster. Restaurant
labor, as a percent of sales, also increased as a result of the larger
contribution by Olive Garden, which has historically had higher restaurant labor
costs, to our overall sales and operating results. Restaurant expenses (which
include lease, property tax, credit card, utility, workers' compensation,
insurance, new restaurant pre-opening and other restaurant-level operating
expenses) increased $20 million, or 10.1 percent, from $195 million to $215
million in the first quarter of fiscal 2006 compared to the first quarter of
fiscal 2005. As a percent of sales, restaurant expenses decreased in the first
quarter of fiscal 2006 primarily as a result of lower workers' compensation
expenses and increased sales leverage at Olive Garden and Red Lobster, which
were partially offset by higher utility and maintenance expenses. The decrease
in our workers' compensation expense resulted primarily from safety initiatives
which have continued to provide reductions in the frequency rate of claims.

Selling, general and administrative expenses increased $18 million, or 16.1
percent, from $115 million to $133 million in the first quarter of fiscal 2006
compared to the first quarter of fiscal 2005. As a percent of sales, selling,
general and administrative expenses increased in the first quarter of fiscal
2006 primarily as a result of increased marketing expenses at Olive Garden and
Red Lobster, which were partially offset by increased sales leverage at Olive
Garden and Red Lobster. The increased marketing expenses, as a percent of sales,
are due to an additional week of advertising for Olive Garden in the first
quarter of fiscal 2006. Also, Red Lobster and Olive Garden increased their media
spending in the first quarter of fiscal 2006 to more normalized levels following
unusually low spending during the first quarter of fiscal 2005, primarily during
the Summer Olympic Games.

Depreciation and amortization expense increased $1 million, or 2.6 percent,
from $53 million to $54 million in the first quarter of fiscal 2006 compared to
the first quarter of fiscal 2005. As a percent of sales,

depreciation and amortization expense decreased in the first quarter of fiscal
2006 primarily as a result of increased sales leverage at Olive Garden and Red
Lobster, which was partially offset by new restaurant activity.

Net interest expense in the first quarter of fiscal 2006 was comparable to
the first quarter of fiscal 2005. Although interest expense increased as a
result of the issuance of additional long-term debt in August 2005, this
increase was offset by the interest income associated with the investment of
proceeds from the issuance of the long-term debt.

INCOME TAXES

The effective income tax rate for the first quarter of fiscal 2006 was 33.2
percent compared to an effective income tax rate of 34.3 percent in the first
quarter of fiscal 2005. The rate decrease in fiscal 2006 was primarily due to an
increase in the amount of tax credits that we expect to receive for fiscal 2006.

NET EARNINGS AND NET EARNINGS PER SHARE

For the first quarter of fiscal 2006, our net earnings were $86 million
compared to $71 million in the first quarter of fiscal 2005, a 20.4 percent
increase, and our diluted net earnings per share were $0.53 compared to $0.44 in
the first quarter of fiscal 2005, a 20.5 percent increase. At Red Lobster,
increased sales and lower food and beverage costs and depreciation expenses as a
percent of sales more than offset higher restaurant labor, restaurant expenses
and selling, general and administrative expenses as a percent of sales. As a
result, Red Lobster had a strong double-digit operating profit increase in the
first quarter of fiscal 2006 compared to the first quarter of fiscal 2005. At
Olive Garden, increased sales and lower food and beverage costs, restaurant
expenses and depreciation expenses as a percent of sales more than offset
increased restaurant labor costs and selling, general and administrative
expenses as a percent of sales, resulting in record first quarter operating
profit for Olive Garden in fiscal 2006 and a double-digit operating profit
increase over the same period in fiscal 2005. The increase in both our net
earnings and diluted net earnings per share for the first quarter of fiscal 2006
was primarily due to increased U.S. same-restaurant sales at Olive Garden and
Red Lobster, new restaurant growth and decreases in our consolidated food and
beverage costs and depreciation expenses as a percent of sales more than
offsetting increased restaurant labor and selling, general and administrative
expenses as a percent of sales.

SEASONALITY

Our sales volumes fluctuate seasonally. During fiscal 2005, our sales were
highest in the spring and winter, followed by the summer, and lowest in the
fall. During fiscal 2004 and 2003, our sales were highest in the spring, lowest
in the fall, and comparable during winter and summer. Holidays, severe weather
and similar conditions may impact sales volumes seasonally in some operating
regions. Because of the seasonality of our business, results for any quarter are
not necessarily indicative of the results that may be achieved for the full
fiscal year.

NUMBER OF RESTAURANTS

The following table details the number of restaurants open at the end of
the first quarter of fiscal 2006, compared with the number open at the end of
fiscal 2005 and the end of the first quarter of fiscal 2005.

- --------------------------------------------------------------------------------------------------------------------
August 28, 2005 May 29, 2005 August 29, 2004
- --------------------------------------------------------------------------------------------------------------------

Red Lobster - USA.................. 650 648 650
Red Lobster - Canada............... 31 31 31
------ ------ ------
Total......................... 681 679 681
------ ------ ------

Olive Garden - USA................. 560 557 539
Olive Garden - Canada.............. 6 6 6
------ ------ ------
Total......................... 566 563 545
------ ------ ------

Bahama Breeze...................... 32 32 32
Smokey Bones ...................... 110 104 76
Seasons 52......................... 3 3 1
------ ------ ------
Total......................... 1,392 1,381 1,335
====== ====== ======

- --------------------------------------------------------------------------------------------------------------------

LIQUIDITY AND CAPITAL RESOURCES

Cash flows generated from operating activities provide us with a
significant source of liquidity, which we use to finance the purchases of land,
buildings and equipment, pay dividends and to repurchase shares of our common
stock. Since substantially all of our sales are for cash and cash equivalents
and accounts payable are generally due in five to 30 days, we are able to carry
current liabilities in excess of current assets. In addition to cash flows from
operations, we use a combination of long-term and short-term borrowings to fund
our capital needs.

Our commercial paper program serves as our primary source of short-term
financing. As of August 28, 2005, no commercial paper was outstanding under the
program. To support our commercial paper program, we have a credit facility
under a Credit Agreement dated August 16, 2005, with a consortium of banks,
under which we can borrow up to $500 million. As part of this credit facility,
we may request issuance of up to $100 million in letters of credit. The
borrowings and letters of credit obtained under the Credit Agreement may be
denominated in U.S. dollars or other currencies approved by the banks. The
Credit Agreement allows us to borrow at interest rates that vary based on a
spread over (i) LIBOR or (ii) a base rate that is the higher of the prime rate
or one-half of one percent above the federal funds rate, at our option. The
interest rate spread over LIBOR is determined by our debt rating. We may also
request that loans be made at interest rates offered by one or more of the
banks, which may vary from the LIBOR or base rate. The credit facility expires
on August 15, 2010, and contains various restrictive covenants, including a
leverage test that requires us to maintain a ratio of consolidated total debt to
consolidated total capitalization of less than 0.65 to 1.00 and a limitation on
secured debt and debt owed by subsidiaries, subject to certain exceptions, of
10% of our consolidated tangible net worth. The credit facility does not,
however, contain a prohibition on borrowing in the event of a ratings downgrade
or a Material Adverse Effect, as defined in the Credit Agreement. None of these
covenants is expected to limit our liquidity or capital resources. As of August
28, 2005, we were in compliance with all covenants under the Credit Agreement.

At August 28, 2005, our long-term debt consisted principally of: (1) $150
million of unsecured 5.75 percent medium-term notes due in March 2007, (2) $75
million of unsecured 7.45 percent medium-term notes due in April 2011, (3) $100
million of unsecured 7.125 percent debentures due in February 2016, (4) $150
million of unsecured 4.875 percent senior notes due in August 2010, (5) $150
million of unsecured 6.000 percent senior notes due in August 2035 and (6) an
unsecured, variable rate $25 million commercial bank loan due in December 2018
that is used to support two loans from us to the Employee Stock Ownership Plan
portion of the Darden Savings Plan. We also have $150 million of unsecured 8.375
percent senior notes due in September 2005 and $150 million of unsecured 6.375
percent notes due in February 2006 included in current liabilities at August 28,
2005. In September 2005, we used the proceeds from our issuance of the 4.875
percent and 6.000 percent senior notes, which were issued in August 2005, to
repay the $150 million of unsecured 8.375 percent senior notes at maturity. We
intend to use the remaining proceeds from the issuance of the senior notes to
repay at maturity or redeem prior to maturity the $150 million of unsecured
6.375 percent notes due February 1, 2006. The proceeds from the issuance of the
senior notes in August 2005 are included in net cash flows provided by (used in)
financing activities for the quarter ended August 28, 2005. Through a shelf
registration on file with the SEC, we may issue up to an additional $300 million
of unsecured debt securities from time to time. The debt securities may bear
interest at either fixed or floating rates and may have maturity dates of nine
months or more after issuance.

A table of our contractual obligations and other commercial commitments as
of May 29, 2005 was included in Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" of our Annual Report on Form 10-K
for the fiscal year ended May 29, 2005. There were no significant changes to our
contractual obligations and other commercial commitments during the quarter
ended August 28, 2005, except that the issuance of our senior notes in August
2005 increased the amount of payments due in respect of long-term debt due in
the less than one year period to $349.6 million, in the 1-3 year period to
$218.1 million, in the 3-5 year period to $209.1 million, and in the more than 5
year period to $620.5 million.

Our Board of Directors has authorized us to repurchase up to an aggregate
of 137.4 million shares of our common stock. Net cash flows provided by (used
in) financing activities included our repurchase of 4.1 million shares of our
common stock for $133 million in the first quarter of fiscal 2006, compared to
2.9 million shares for $62 million in the first quarter of fiscal 2005. As of
August 28, 2005, we have repurchased a total of 124.6 million shares of our
common stock. The repurchased common stock is reflected as a reduction of
stockholders' equity.

Net cash flows used in investing activities included capital expenditures
incurred principally for building new restaurants, replacing equipment and
remodeling existing restaurants. Capital expenditures were $81 million in the
first quarter of fiscal 2006, compared to $63 million in the first quarter of
fiscal 2005. The increased expenditures in the first quarter of fiscal 2006
resulted primarily from increased spending associated with building new
restaurants.

We are not a party to any off-balance sheet arrangements that have, or are
reasonably likely to have, a current or future material effect on our financial
condition, changes in financial condition, sales or expenses, results of
operations, liquidity, capital expenditures or capital resources. We are not
aware of any trends or events that would materially affect our capital
requirements or liquidity. We believe that our internal cash generating
capabilities and borrowings available under our shelf registration statement for
unsecured debt securities and short-term commercial paper program will be
sufficient to finance our capital expenditures, dividends, stock repurchase
program and other operating activities through fiscal 2006.

FINANCIAL CONDITION

Our current assets totaled $711 million at August 28, 2005, compared to
$407 million at May 29, 2005. The increase resulted primarily from the proceeds
received from the issuance of $300 million of senior notes in August 2005, which
were included in cash and cash equivalents and short-term investments at August
28, 2005.

Our current liabilities totaled $1.10 billion at August 28, 2005, compared
to $1.04 billion at May 29, 2005. Accounts payable of $229 million at August 28,
2005, increased from $191 million at May 29, 2005, principally due to the timing
of payments associated with our share repurchase program and the timing and
terms of inventory purchases, capital expenditures and related payments. Accrued
payroll of $99 million at August 28, 2005, decreased from $115 million at May
29, 2005, principally due to the payout of the fiscal 2005 incentive
compensation during the first quarter of fiscal 2006. Accrued income taxes of
$91 million at August 28, 2005, increased from $52 million at May 29, 2005,
principally due to the income taxes accrued for in the first quarter of fiscal
2006 and the timing of income tax payments. Unearned revenues of $77 million at
August 28, 2005, decreased from $88 million at May 29, 2005, principally due to
seasonal fluctuations in sales and redemptions of our gift cards. Long-term debt
of $647 million at August 28, 2005, increased from $350 million at May 29, 2005,
primarily from the issuance of $300 million of senior notes in August 2005.

CRITICAL ACCOUNTING POLICIES

We prepare our consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of sales and expenses during the reporting
period (see Note 1, "Summary of Significant Accounting Policies" under Notes to
Consolidated Financial Statements included in Item 8, "Financial Statements and
Supplementary Data" of our Annual Report on Form 10-K for the fiscal year ended
May 29, 2005). Actual results could differ from those estimates.

Critical accounting policies are those we believe are both most important
to the portrayal of our financial condition and operating results and require
our most difficult, subjective or complex judgments, often as a result of the
need to make estimates about the effect of matters that are inherently
uncertain. Judgments and uncertainties affecting the application of those
policies may result in materially different amounts being reported under
different conditions or using different assumptions. We consider the following
policies to be most critical in understanding the judgments that are involved in
preparing our consolidated financial statements.

Land, Buildings and Equipment

Land, buildings and equipment are recorded at cost less accumulated
depreciation. Building components are depreciated over estimated useful lives
ranging from seven to 40 years using the straight-line method. Leasehold

improvements, which are reflected on our consolidated balance sheets as a
component of buildings, are amortized over the lesser of the expected lease
term, including cancelable option periods, or the estimated useful lives of the
related assets using the straight-line method. Equipment is depreciated over
estimated useful lives ranging from two to 10 years, also using the
straight-line method. Accelerated depreciation methods are generally used for
income tax purposes.

Our accounting policies regarding land, buildings and equipment, including
leasehold improvements, include our judgments regarding the estimated useful
lives of these assets, the residual values to which the assets are depreciated
or amortized, the determination of what constitutes expected lease term and the
determination as to what constitutes enhancing the value of or increasing the
life of existing assets. These judgments and estimates may produce materially
different amounts of reported depreciation and amortization expense if different
assumptions were used. As discussed further below, these judgments may also
impact our need to recognize an impairment charge on the carrying amount of
these assets as the cash flows associated with the assets are realized.

Leases

We are obligated under various lease agreements for certain restaurants. We
recognize rent expense on a straight-line basis over the expected lease term,
including cancelable option periods as described below. Within the provisions of
certain of our leases, there are rent holidays and/or escalations in payments
over the base lease term, as well as renewal periods. The effects of the
holidays and escalations have been reflected in rent expense on a straight-line
basis over the expected lease term, which includes cancelable option periods
when it is deemed to be reasonably assured that we would incur an economic
penalty for not exercising the option. The lease term commences on the date when
we have the right to control the use of the leased property, which is typically
before rent payments are due under the terms of the lease. Many of our leases
have renewal periods totaling five to 20 years, exercisable at our option and
require payment of property taxes, insurance and maintenance costs in addition
to the rent payments. The consolidated financial statements reflect the same
lease term for amortizing leasehold improvements as we use to determine capital
versus operating lease classifications and in calculating straight-line rent
expense for each restaurant. Percentage rent expense is generally based upon
sales levels and is accrued at the point in time we determine that it is
probable that such sales levels will be achieved.

Our judgments related to the probable operating term for each restaurant
affect the classification and accounting for leases as capital versus operating,
the rent holidays and escalation in payments that are included in the
calculation of straight-line rent and the term over which leasehold improvements
for each restaurant facility are amortized. These judgments may produce
materially different amounts of depreciation, amortization and rent expense than
would be reported if different assumed lease terms were used.

Impairment of Long-Lived Assets

Land, buildings and equipment and certain other assets, including
capitalized software costs and liquor licenses, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of the assets to the future
undiscounted net cash flows expected to be generated by the assets. Identifiable
cash flows are measured at the lowest level for which they are largely
independent of the cash flows of other groups of assets and liabilities,
generally at the restaurant level. If these assets are determined to be
impaired, the amount of impairment recognized is the amount by which the
carrying amount of the assets exceeds their fair value. Fair value is generally
determined by appraisals or sales prices of comparable assets. Restaurant sites
and certain other assets to be disposed of are reported at the lower of their
carrying amount or fair value, less estimated costs to sell. Restaurant sites
and certain other assets to be disposed of are included in assets held for sale
when certain criteria are met. These criteria include the requirement that the
likelihood of disposing of these assets within one year is probable. Assets
whose disposal is not probable within one year remain in land, buildings and
equipment until their disposal is probable within one year.

The judgments we make related to the expected useful lives of long-lived
assets and our ability to realize undiscounted cash flows in excess of the
carrying amounts of these assets are affected by factors such as the ongoing
maintenance and improvements of the assets, changes in economic conditions and
changes in usage or operating performance. As we assess the ongoing expected
cash flows and carrying amounts of our long-lived assets, significant adverse
changes in these factors could cause us to realize a material impairment charge.
In the fourth quarter of fiscal 2004, we recognized asset impairment charges of
$37 million ($23 million after-tax) for the closing

of six Bahama Breeze restaurants and the write-down of four other Bahama Breeze
restaurants, one Olive Garden restaurant and one Red Lobster restaurant based on
an evaluation of expected cash flows. During fiscal 2005, we recognized asset
impairment charges of $6 million ($4 million after-tax) for the write-down of
two Olive Garden restaurants, one Red Lobster restaurant and one Smokey Bones
restaurant based on an evaluation of expected cash flows. The two Olive Garden
restaurants, one Red Lobster restaurant and one Smokey Bones restaurant were
closed in fiscal 2006.

Insurance Accruals

Through the use of insurance program deductibles and self-insurance, we
retain a significant portion of expected losses under our workers' compensation,
employee medical and general liability programs. However, we carry insurance for
individual claims that generally exceed $0.25 million for workers' compensation
and general liability claims. Accrued liabilities have been recorded based on
our estimates of the anticipated ultimate costs to settle all claims, both
reported and not yet reported.

Our accounting policies regarding these insurance programs include our
judgments and independent actuarial assumptions regarding economic conditions,
the frequency or severity of claims and claim development patterns and claim
reserve, management and settlement practices. Unanticipated changes in these
factors may produce materially different amounts of reported expense under these
programs.

Income Taxes

We estimate certain components of our provision for income taxes. These
estimates include, among other items, depreciation and amortization expense
allowable for tax purposes, allowable tax credits for items such as taxes paid
on reported employee tip income, effective rates for state and local income
taxes and the tax deductibility of certain other items.

Our estimates are based on the best available information at the time that
we prepare the provision. We generally file our annual income tax returns
several months after our fiscal year-end. Income tax returns are subject to
audit by federal, state and local governments, generally years after the returns
are filed. These returns could be subject to material adjustments or differing
interpretations of the tax laws.

FUTURE APPLICATION OF ACCOUNTING STANDARDS

In December 2004, the FASB issued SFAS No. 123 (Revised), "Share-Based
Payment." SFAS No. 123R revises SFAS No. 123, "Accounting for Stock-Based
Compensation" and generally requires the cost associated with employee services
received in exchange for an award of equity instruments be measured based on the
grant-date fair value of the award and recognized in the financial statements
over the period during which employees are required to provide service in
exchange for the award. SFAS No. 123R also provides guidance on how to determine
the grant-date fair value for awards of equity instruments as well as
alternative methods of adopting its requirements. SFAS No. 123R is effective for
annual reporting periods beginning after June 15, 2005. As disclosed in Note 3
to the Consolidated Financial Statements, based on the current assumptions and
calculations used, had we recognized compensation expense based on the fair
value of awards of equity instruments, net earnings would have been reduced by
approximately $4,632 and $3,968 for quarters ended August 28, 2005 and August
29, 2004, respectively. We have not yet determined the method of adoption or the
effect of adopting SFAS No. 123R and have not determined whether the adoption
will result in future amounts similar to the current pro forma disclosures under
SFAS No. 123.

FORWARD-LOOKING STATEMENTS

Certain statements included in this report and other materials filed or to
be filed by us with the SEC (as well as information included in oral or written
statements made or to be made by us) may contain statements that are
forward-looking within the meaning of the Private Securities Litigation Reform
Act of 1995, as codified in Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Words or phrases such as "believe," "plan," "will," "expect,"
"intend," "estimate," and "project," and similar expressions are intended to
identify forward-looking statements. All of these statements, and any other
statements in this report that are not historical facts, are forward-looking.
Examples of forward-looking statements include, but are not limited to,
projections regarding: our growth plans and the number and type of expected new
restaurant openings and related capital expenditures; same-restaurant sales
growth; expected diluted

net earnings per share growth; expected trends that might impact capital
requirements and liquidity; expected contributions to our defined benefit
pension plans; and the impact of litigation on our financial position; and the
impact of Hurricanes Katrina and Rita on our fiscal 2006 sales and net earnings.
These forward-looking statements are based on assumptions concerning important
factors, risks and uncertainties that could significantly affect anticipated
results in the future and, accordingly, could cause the actual results to differ
materially from those expressed in the forward-looking statements. These
factors, risks and uncertainties include, but are not limited to:

o intense competition, especially with respect to pricing, service, location,
personnel and type and quality of food; o economic and business factors,
both specific to the restaurant industry and general economic factors,
including changes in consumer preferences, demographic trends, severe
weather, a protracted economic slowdown or worsening economy, industry-wide
cost pressures and public safety conditions, including actual or threatened
armed conflicts or terrorist attacks;
o the price and availability of food, ingredients and utilities, including
the general risk of inflation;
o labor and insurance costs, including increased labor costs as a result of
federal and state-mandated increases in minimum wage rates and increased
insurance costs as a result of increases in our current insurance premiums;
o increased advertising and marketing costs;
o higher-than-anticipated costs to open, close, relocate or remodel
restaurants;
o litigation by employees, consumers, suppliers, shareholders or others,
regardless of whether the allegations made against us are valid or we are
ultimately found liable;
o unfavorable publicity relating to food safety or other concerns;
o a lack of suitable new restaurant locations or a decline in the quality of
the locations of our current restaurants; o government regulations,
including federal, state and local laws and regulations relating to our
relationships with our employees, zoning, land use, environmental matters
and liquor licenses; and
o a failure to achieve growth objectives, including lower-than-expected sales
and profitability of newly-opened restaurants, our expansion of newer
concepts that have not yet proven their long-term viability, our ability to
develop new concepts, risks associated with growth through acquisitions and
our ability to manage risks relating to the opening of new restaurants,
including real estate development and construction activities, union
activities, the issuance and renewal of licenses and permits, the
availability of funds to finance growth and our ability to hire and train
qualified personnel.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to a variety of market risks, including fluctuations in
interest rates, foreign currency exchange rates and commodity prices. To manage
this exposure, we periodically enter into interest rate, foreign currency
exchange and commodity instruments for other than trading purposes.

We use the variance/covariance method to measure value at risk, over time
horizons ranging from one week to one year, at the 95 percent confidence level.
As of August 28, 2005, our potential losses in future net earnings resulting
from changes in foreign currency exchange rate instruments, commodity
instruments and floating rate debt interest rate exposures were approximately $8
million over a period of one year. The value at risk from an increase in the
fair value of all of our long-term fixed rate debt, over a period of one year,
was approximately $52 million. The fair value of our long-term fixed rate debt
during the first quarter of fiscal 2006 averaged $726 million, with a high of
$961 million and a low of $651 million. The increase in the fair value of our
long-term fixed rate debt is primarily due to the issuance of $300 million of
senior notes in August 2005. A portion of the proceeds from this issuance was
used to repay at maturity our outstanding $150 million of 8.375 percent senior
notes on September 15, 2005. We intend to use the remaining proceeds from the
issuance to repay at maturity or redeem prior to maturity our outstanding $150
million of 6.375 percent notes due February 1, 2006.

Our interest rate risk management objective is to limit the impact of
interest rate changes on earnings and cash flows by targeting an appropriate mix
of variable and fixed rate debt.

Item 4. Controls and Procedures

Under the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial Officer, we
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as
of August 28, 2005, the end of the period

covered by this report. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of August 28, 2005.

During the fiscal quarter ended August 28, 2005, there was no change in our
internal control over financial reporting (as defined in Rule 13a-15(f) under
the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.

PART II
OTHER INFORMATION

Item 1. Legal Proceedings

We are subject to private lawsuits, administrative proceedings and claims
that arise in the ordinary course of our business. A number of these lawsuits,
proceedings and claims may exist at any given time. These matters typically
involve claims from guests, employees and others related to operational issues
common to the restaurant industry, and can also involve infringement of, or
challenges to, our trademarks. While the resolution of a lawsuit, proceeding or
claim may have an impact on our financial results for the period in which it is
resolved, we believe that the final disposition of the lawsuits, proceedings and
claims in which we are currently involved, either individually or in the
aggregate, will not have a material adverse effect on our financial position,
results of operations or liquidity.

In March 2003 and March 2002, two purported class action lawsuits were
brought against us in the Superior Court of Orange County, California by three
current and former hourly restaurant employees alleging violations of California
labor laws with respect to providing meal and rest breaks. Although we continue
to believe we provided the required meal and rest breaks to our employees, to
avoid potentially costly and protracted litigation, we agreed during the second
quarter of fiscal 2005 to settle both lawsuits and a similar case filed in
Sacramento County for approximately $9.5 million. Terms of the settlement, which
do not include any admission of liability by us, have received preliminary
judicial approval, and claims administration is underway. The settlement amounts
of these lawsuits are included in other current liabilities at August 28, 2005.

In August 2003, three former employees in Washington filed a similar
purported class action in Washington State Superior Court in Spokane County
alleging violations of Washington labor laws with respect to providing rest
breaks. The Court stayed the action and ordered the plaintiffs into our
mandatory arbitration program. The plaintiffs' motion for reconsideration was
not granted; their appeal of the denial of reconsideration was also not granted,
and the plaintiffs subsequently filed a demand for arbitration. We believe we
provided the required meal and rest breaks to our employees, and we intend to
vigorously defend our position in this case.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The table below provides information concerning our repurchase of shares of
our common stock during the first quarter of fiscal 2006. Since commencing
repurchases in December 1995, we have repurchased a total of 124.6 million
shares under authorizations from our Board of Directors to repurchase an
aggregate of 137.4 million shares.

- -------------------------------- --------------------- -------------- ----------------------- -----------------------
Total Number of Maximum Number of
Shares Purchased as Shares that
Total Number Average Part of Publicly May Yet be Purchased
of Shares Purchased Price Paid Announced Plans or Under the Plans or
Period (1) per Share Programs Programs (2)
- -------------------------------- --------------------- -------------- ----------------------- -----------------------

May 30, 2005 through July 3,
2005 478,513 $33.06 478,513 16,336,616
- -------------------------------- --------------------- -------------- ----------------------- -----------------------
July 4, 2005 through July
31, 2005 850,372 $34.19 850,372 15,486,244
- -------------------------------- --------------------- -------------- ----------------------- -----------------------
August 1, 2005 through
August 28, 2005 2,725,189 $32.38 2,725,189 12,761,055
- -------------------------------- --------------------- -------------- ----------------------- -----------------------
Total 4,054,074 $32.84 4,054,074 12,761,055
- -------------------------------- --------------------- -------------- ----------------------- -----------------------

(1) All of the shares purchased during the first quarter of fiscal 2006 were
purchased as part of our repurchase program, the authority for which was
increased to an aggregate of 137.4 million shares by our Board of Directors
on September 28, 2004, and announced publicly in a press release issued the
same day. There is no expiration date for our program. The number of shares
purchased includes shares withheld for taxes on vesting of restricted stock
and shares delivered or deemed to be delivered to us on tender of stock in
payment for the exercise price of options. These shares are included as
part of our repurchase program and deplete the repurchase authority granted
by our Board. The number of shares repurchased excludes shares we
reacquired pursuant to tax withholding on option exercises or forfeiture of
restricted stock.
(2) Repurchases are subject to prevailing market prices, may be made in open
market or private transactions and may occur or be discontinued at any
time. There can be no assurance that we will repurchase any shares.

Item 6. Exhibits

Exhibit10 Credit Agreement dated as of August 16, 2005 with
the certain banks listed therein, Bank of America,
N.A. as syndication agent, SunTrust Bank as
syndication agent, Wells Fargo Bank, National
Association as documentation agent, and Wachovia
Bank, National Association as administrative agent
(incorporated by reference to Exhibit 10 to our
Current Report on Form 8-K filed August 18, 2005).

Exhibit 12 Computation of Ratio of Consolidated Earnings to Fixed
Charges.

Exhibit 31(a) Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31(b) Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32(a) Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32(b) Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

DARDEN RESTAURANTS, INC.

Dated: October 5, 2005 By: /s/ Paula J. Shives
------------------------------
Paula J. Shives
Senior Vice President,
General Counsel and Secretary

Dated: October 5, 2005 By: /s/ Linda J. Dimopoulos
------------------------------
Linda J. Dimopoulos
Senior Vice President and Chief
Financial Officer
(Principal financial officer)

INDEX TO EXHIBITS

Exhibit
Number Exhibit Title

10 Credit Agreement dated as of August 16, 2005 with the certain banks
listed therein, Bank of America, N.A. as syndication agent, SunTrust
Bank as syndication agent, Wells Fargo Bank, National Association as
documentation agent, and Wachovia Bank, National Association as
administrative agent (incorporated by reference to Exhibit 10 to our
Current Report on Form 8-K filed August 18, 2005).

12 Computation of Ratio of Consolidated Earnings to Fixed Charges.

31(a) Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.

31(b) Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.

32(a) Certification of Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.

32(b) Certification of Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.